With tens of thousands of layoffs by some of the world’s most iconic brands, initial unemployment claims remaining uncomfortably high and daily new coronavirus (COVID-19) cases in the U.S. growing to more than 40,000 on average, there is no shortage of reasons to be cautious, if not anxious, about the economy.
Timothy R. Fiore, CPSM, C.P.M., Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee, acknowledges this reality, telling reporters on a conference call on Thursday, “This has been the most dynamic time of economic activity that we've seen in my lifetime, and things can change quickly.” However, one of the U.S. economy’s leading indicators, the Manufacturing ISM® Report On Business®, showed signs of stability.
While the final read for the Aug #ISM #Manufacturing index is a bit disappointing at 55.4 vs #WSJ expectations for 56.2, it still shows healthy growth in #USManufacturing. Meanwhile #ConstructionSpending jumped to 1.4% in Aug vs projections for 0.9%. https://t.co/f1VxVFbgZb— Cre8tive Logic (@Cre8tiveLogic) October 1, 2020
The September Manufacturing PMI® of 55.4 percent was slightly below analysts’ expectations but indicated solid U.S. factory activity growth for a fourth consecutive month. The subindexes that gauge demand had encouraging numbers, the Employment Index was in contraction territory — just barely — and Survey Committee respondents’ comments indicated an eagerness to hire, and prices indicated a sellers’ market, with buyers willing to oblige. “This report is positive,” Fiore said. “There's not a single thing I can see that would cause me to be overly concerned about the future.”
The New Orders Index declined 7.4 percentage points to 60.2 percent, which is still in strong expansion territory. But Fiore said that is not a concern if the New Export Orders and Backlog of Orders indexes continue growing, and the Customers’ Inventories Index stays in “too low” territory. Those indexes measure demand, and Fiore added that if a product is not on shelves, manufacturing-sector customers will eagerly come back when it is.
Sep ISM Mfg. Index down a bit to 55.4... Still very Bullish with higher Employment & much lower Inventory— PlungeProtectionTeam (@gamesblazer06) October 1, 2020
“Customer Inventories Index at its Lowest Figure since June 2010, a level considered a positive for Future Production” = Mega Bullish. #Reflation $TLT $ZROZ pic.twitter.com/VhZr0zTsvz
At 37.9 percent, the Customers’ Inventories Index was at its lowest level since 2010. “I love to see that number really low because it means people are showing up to buy things and the shelves are empty, which means companies have to produce more to fill the shelves,” Fiore said. “The lower the number, the happier I am, and (the index) has been at a historic low level for a couple of months.”
The Prices Index registered 62.8 percent, up 3.3 percentage points compared to August, and Fiore said copper and steel were the primary drivers of increases. However, companies are grinning and bearing it; Fiore said Survey Committee comments have yet to indicate that price hikes are being passed along to customers. “Companies are having to take the price increases if they want the product,” he said. “If you are going to haggle over the price and your factory does not get the product, that's not a wise decision.”
Fiore continued: “I think people are happy to have and ship materials, and the margins are not being watched as closely as normal. That will come back as we enter 2021. In 2020, (practitioners are) just doing the best they can amid all of the overwhelming events that have affected the ability to perform.”
Hiring has picked up in manufacturing- apparently manufacturers are having trouble finding workers - so they're optimistic about hiring but the numbers are restrained by being able to find people says @ism #Job— Jennifer Schonberger (@Jenniferisms) October 1, 2020
One of the areas companies are trying to muddle through is head count. Survey Committee comments — about 70 percent, Fiore said — indicate companies want to hire. However, the Employment Index (49.6 percent) remained below 50 for a 14th straight month. And layoffs have hit the aviation industry, from Boeing to airlines, especially hard.
While discussions on another coronavirus relief package continue in Washington, a bipartisan deal does not appear imminent. Fiore said that a lack of stimulus would have a “delayed” reaction on factories, adding the services sector would be hurt worse in the near term.
“There’s a need for stimulus, and the gap between two parties is not good for economy,” Fiore said. “How long will it take for travel to come back, and can you provide support until there is a vaccine? Can you provide money for the next year and a half, until people travel again?”
After expanding at the fastest pace since Nov. 2018 in Aug., the @ism said that growth in manufacturing activity slowed somewhat in Sept. The sample comments note rebounds in the manufacturing sector, but also lingering demand, supply disruptions and uncertainties in the outlook. pic.twitter.com/OLAvhUHuNa— Chad Moutray (@chadmoutray) October 1, 2020
The Report On Business® roundup:
Associated Press: September Growth for U.S. Manufacturing; Fifth Straight Month. “Although manufacturing picked up beginning in June, there are signs that activity may be slowing. Last week, the Commerce Department reported that orders to U.S. factories for big-ticket manufactured goods increased just 0.4% in August following a much larger gain in the previous month. It was the fourth consecutive monthly increase, but it was far weaker than the 11.7% surge in July.”
Bloomberg: U.S. Manufacturing Gauge Pulls Back on Slower Orders, Production. “Though softer than expected, the manufacturing gauge is still at its third-highest level since 2018. The COVID-19 pandemic and associated business closures crippled factory production, but as the economy has opened more broadly, the sector has recovered rapidly. However, as the initial wave of pent-up demand has tempered, so has the pace of growth for the nation’s producers.”
CNBC: ISM Manufacturing Index at 55.4 Versus 56.3 Expected. “Now, the moneyball number: September read on ISM manufacturing. We were expecting a number around 56.5. This one is actually a disappointment: 55.4 is the number,” analyst Rick Santelli said. “If we go through the internals, you can see what's going on. (The New Orders Index) is problematic: 67.6 last time, 60.2 the new read. … (P)rices paid: That's interesting; it's ramping up — 62.8, versus 59.5 last time. And perhaps the most telling number, even though it improved, the Employment Index is still below the expansion/contraction line. … Considering we have (Friday's) big, important (federal) jobs data, to see this sub-50, is going to make people rethink the horsepower on the jobs front.”
Dow Jones Newswires: U.S. Manufacturing Sector Keeps Up Momentum in September — ISM. “The figure misses expectations from economists polled by The Wall Street Journal, who predicted the PMI to be at 56.3 (percent). This indicator signaled a continued rebuilding of economic activity during the month, ISM said, with all subindexes either remaining in moderate to strong growth territory or slowing their rate of contraction.”
Overall a solid @ism manufacturing report.. New orders with 3 months over 60 is very positive.. Employment still in contraction is not good. Interesting comment that lines up with the jump in ADP trade and transportation jobs.....seems that sector is seeing a strong rebound... pic.twitter.com/ThpF2SNClJ— Marco Mazzocco, CFA (@MarcoMNYC) October 1, 2020
IndustryWeek: ISM: Manufacturing Growth Steady in the Shadow of Virus. “Despite the mainly positive figures, survey responses from manufacturing executives made it clear that the coronavirus pandemic is still affecting business. An executive from the food and beverage sector said that retail sales were still strong, but reported sustained difficulty manning shifts due to employees contracting the virus. A representative from the fabricated metal products sector said that business conditions are ‘improving, but not at the rates we saw them decline.’ ”
ING Think: Manufacturing and Construction Boost 3Q GDP Hopes. “Manufacturing is doing well as inventories are rebuilt following the shutdowns brought about by COVID-19 containment protocols. The recovery in global trade is also providing benefits with new export orders up at 54.3 (percent) from 53.3 and much better than the six-month average of 46.7. Throw in strong US consumer demand, particularly for cars and housing, which in turn fuels demand for big ticket items such as washing machines, fridges, electronics (and the like), and the prospects for the sector continue to look decent.”
MarketWatch: U.S. Manufacturers Expand for Fifth Month in a Row, ISM Finds, and Maintain Momentum. “The sharp rebound in manufacturing shown by the ISM survey suggests the U.S. economy is recovering faster than expected, but business has by no means returned to normal. … Most manufacturers are still producing fewer goods with fewer workers than they were before the pandemic, and it’ll likely be some time before output and employment climb above pre-crisis levels given depressed demand at home and abroad.”
Weaker than expected September @ISM Manufacturing PMI at 55.4 vs. 56.5 est. & 56 in prior month; new orders & production slowed but are still expanding; prices paid up along with backlogs … employment ticked up but still in contractionary territory pic.twitter.com/t0j4cfyU7h— Liz Ann Sonders (@LizAnnSonders) October 1, 2020
Reuters: U.S. Manufacturing Sector Slows in September: ISM. “The slowdown in manufacturing activity last month supports views that the recovery from the COVID-19 recession is losing steam as government money to help businesses and millions of unemployed runs out. In addition, new coronavirus cases are rising, and infections are expected to accelerate in the fall.”
The Wall Street Journal: U.S. Manufacturing Shows Improvement But Hiring Lags. “Mr. Fiore pointed to several headwinds that could slow the pace of the manufacturing recovery. First, a rise in coronavirus infections this fall could prompt more businesses to shut down and workers to stay home. Second, schools’ move online could keep many parents home from work. Finally, uncertainty around the presidential election could prompt firms to postpone investments.”
ISM’s Services PMI™ will be unveiled on Monday, and the Hospital PMI™ on Wednesday. For the most up-to-date content on the reports under the ISM® Report On Business® umbrella, use #ISMPMI on Twitter.